California’s First Carbon Auction Challenged in Lawsuit

California was sued by the state’s Chamber of Commerce, which seeks to bar the auction of carbon allowances, a key element of the state’s cap-and-trade program aimed at reducing greenhouse gas pollution.

The business group said in a complaint filed yesterday in state court in Sacramento that the California Air Resources Board lacks authority to auction carbon allowances, which it alleges is a paramount to an invalid tax or unconstitutional fee that would cost taxpayers $70 billion. The complaint couldn’t be immediately confirmed in electronic court records. California officials said today’s auction will proceed.

Ann Carlson, an environmental law professor at the University of California, Los Angeles, said yesterday it remains unclear whether the allowance auction constitutes a tax.

“The auction could be viewed as akin the selling off of state property, not the levying of a tax,” Carlson said in an e-mailed statement. “If the auction is not a tax, the lawsuit should be dismissed.”

The court will probably defer to the state air resources board about the design choices it made in developing the cap- and-trade program, including the choice to auction a portion of the allowances, she said.